With business travel not returning any time soon, American Airlines Senior Vice President Vasu Raja explained to the airline’s pilots at the end of last week a new strategy for the carrier – and a change in how they think about the business.
Right now American is seeing most of its business in the Southeast and the middle of the country, and not on the coasts. He says, “We can’t even begin to describe how small total net bookings are to and from New York City.”
At the end of July and early August “net bookings were 75% down, revenues were maybe 20%-25% of last year at best” now “systemwide net bookings are down 65% – 70%” but “almost all of that improvement is driven by the sun belt, and even though [Covid-19] case growth has been higher…total bookings have continued to rise. in those hubs they fly our biggest load factors..around 11 o’clock in the morning Charlotte looks like a fully functioning Charlotte..same with Dallas Fort-Worth right now.”
And it’s not just New York’s quarantines, because “even for things like the [Boston-New York-DC] shuttle which is not as impacted by quarantines there’s just a real absence of demand either going to New York or exiting New York.”
There’s a shift in demand overall. Right now it’s regional but it’s also away from business travel and towards leisure travel. And American Airlines isn’t going to remain a business travel airline with no business travel customers. Raja explains,
[T]he same thing we tell our director and above team…we’ve flown 85% full in Februarys and Septembers. Our problem was never generating demand. so much of it was generating demand at the right fares so that we can go make money as an airline.
For 20 years from 9/11 through the [American-US Airways] merger, we were able to do it because
- we were really good at putting seats on airplanes, so we could spread all our costs over more seats, and
- we built huge networks and revenue management systems..so we could match everybody’s low fares and still make money.
So average fares never really grew from the time of 9/11 to the time of the aa/us merger, but our profits went from negative to positive across the whole industry and a big part of that was business travel. 10% or 15% of customers were producing 40% of revenues across the industry.
Raja is right that business travel made up a disproportionate share of revenue, but that’s not what changed and drove profits. Business travel was big when airlines were losing money too (except for blips during recession). In fact, American’s share of frequent traveler business has been shrinking since the US Airways merger.
Instead what turned airlines from losses to profits with flat ticket revenue was low fuel and richer credit card deals.
Still, American Airlines was a high cost airline and that only worked attracting high business fares. And they aren’t keeping their business the same just waiting for those business customers to return. American isn’t “forecast when these customers come back, we have to make our reality, and the reality is that right now we’ve got to think more like a $2 billion startup than a $45 billion airline that lost a lot of stuff.”
Raja wants an airline for the customers that are out there today,
[T]here’s a segment of customers who is traveling right now, they’re the ones filling flights to Florida and Mexico. They’re the reason charlotte airport and DFW looks like that. And we’ve got to be as easy as possible to do business with for those customers and a number of things we’ve done in the past, for different reasons, the structure of our basic economy fares, the way we’ve had any number of fees and other structure, may not work for those customers…that may change our network, that may change our fare product, that may change our loyalty program, those customers are there now and we got to go and bring them in and figure out a way to win more of their business.
Since Raja now oversees the AAdvantage program as part of his portfolio his musings on coming changes to AAdvantage make my ears stand up. However he’s also talking about being a friendlier leisure travel airline too. Perhaps we’ll see American match United’s elimination of domestic change fees (which excludes Basic Economy fares).
One thing we do know that’s changing for American is more routes the airline would never have flown in the past, such as “flying point-to-point routes, flying 30 or 40 routes into Caribbean or Mexico that don’t touch a hub.” Indeed, American just added a number of unusual routes to its schedule, some very seasonal and even just Saturday service. These include:
- Miami – Portland Maine, Rochester, Milwaukee, Dayton, Lexington
- Cancun – Indianapolis, Columbus; Kansas City; Raleigh
- Cabo – New York JFK, Sacramento
- Phoenix – Tulsa
Sacramento to Cabo non-stop!
Update: they’re also adding Cancun – St. Louis, Charlotte – Puerto Vallarta, and Phoenix – Calgary, Billings, Bismark, and Nashville. (HT: @IshrionA)
Following Raja’s comments though CEO Doug Parker chimed in that he doesn’t see fundamental changes to demand, and business traveler drying up long-term – he even sees Zoom meetings, which he thinks are awful, adding to business travel demand rather than detracting from it.
Parker does say though that they’ve “done things to the product” and they should “only add back what makes sense.” They’ve eliminated costs in the crisis, and they’re re-thinking the product going forward.
1. AA and DL are going to have to match UA’s elimination of change fees
2. The only way AA can succeed with this plan is to significantly lower labor costs, which means either contractual concessions (unlikely) or Chapter 11 (more likely).
More I hear from this Raja guy the more I think maybe DP isn’t their biggest problem. Four months ago he was going around saying now was the time to double down, to invest more, to build an airline for the future. Now he’s saying his airline needs to be a startup that flies to the sun belt and Florida and the hell with business travelers.
I am old enough to remember Gary pointing out American’s profit was entirely from credit card and AAdvantage for at least a few periods pre-Covid. That reality doesn’t sync up with this sort of hindsight view.
I’d have more respect if these guys just came out and said, we don’t know, we’ve never operated in this environment, we have no idea what to do, right now we think we need to be the airline for the customers that are there at this time, and we will have to see about the future. Their prognostications are crap.
Mark this day-Discount Dougie finally said something I agree with…zoom meetings ARE awful!
If American takes away domestic business seats you may as well fly southwest. I like my upgrades to business class. Will not be patronizing aa then and can also get rid of as credit cards!!!!! Worthless!!!! At least SW has a reasonable companion deal!
Raja repositioning American as a low fare, high cost airline… What could possibly go wrong?
Where can one find the complete listing of new routes? Interesting as their new partner, JetBlue also added leisure routes to their network about a month or so ago. as has United to Florida.
A $2bn valuation may be too high.
Smart move – AA has to do anything they can to generate revenue and if these are the flights that will get the most traffic now by all means schedule them. That doesn’t mean they can’t go back to a more traditional network once business travel warrants.
I really like Raja and think he brings some new viewpoints, that are desperately needed, to AA. Airlines will all have to learn to be much more nimble and make constant changes to match the every changing market.
Perhaps their coast to coast business dried up because they were the most expensive going NY to SFO or LAX and vice versa? Wonder if they ever thought if that!
One of the comments says it all, especially regarding the Business travelers….
” or 20 years from 9/11 through the [American-US Airways] merger, we were able to do it because
we were really good at putting seats on airplanes, so we could spread all our costs over more seats, and
We built huge networks and revenue management systems..so we could match everybody’s low fares and still make money”.
With this move the “make over” of what was once a top of the line carrier is complete and it is now, just like USAIR, a clueless also ran.
Parker and Raja are a great match…..they are just setting the stage for their big payouts when the inevitable bankruptcy hits.
I used to fly American all the time and considered them my go to airline, but no more….they punish semi-frequent travelers like me (retired, intent on seeing the world). My real gripe with them comes when you try to cash in on a reward…..the awful connections, flight times, multiple legs (ie DEN-DFW-CHT-Final Destination) and airport transfers (ie fly to Newark but out of JFK) are mind boggling and indicate that American does not want us “loyal” customers to redeem their miles….well, we have a choice, and I will no longer look to them as a first or second choice. Lufthansa has been my go to airline recently, as they have great connections from Denver to and throughout Europe….We were scheduled to fly United to Zurich next month, but have postponed that to 2021….and I appreciate United’s recent announcement that they no longer will charge change fees.
Here’s a suggestion for American in the near term — ease up on your stupid onerous connections on reward travel. You are not flying anywhere near capacity, so there is no longer the need for 3 legs on a redemption and 8 hour layovers….you might actually get some of your customers back
If AA wants to be a leisure airline, how about awarding miles based on distance traveled rather than fare paid.
Putting more seats on planes during a pandemic is going to backfire. May have worked in the past, but I believe when business travel resumes hard product will be important. This pause is a time to reset and re-prioritize on everything. I doubt they are going to backtrack on Oasis, but I’m not interested in a LCC experience and Delta at least appears to be ticking most of the boxes that are important to me.
“CEO Doug Parker chimed in that he doesn’t see fundamental changes to demand, and business traveler drying up long-term – he even sees Zoom meetings, which he thinks are awful, adding to business travel demand rather than detracting from it.”
Once again, I find myself wondering what planet Parker is from…
As for Raja…no, I won’t say it.
Parker also better up his customer service, ticket agent
and Flight Attendant staff to be friendlier. That might change their previous mantra of “were not happy till your not happy”!
If they’re doing to start doing more point-to-point routes, would love to see an AUS-SFO pairing!
Yeah getting away from business travelers, just take a gander at the travelers we are getting with those low fares. I know, i am there everyday.
And fir those who continue to bash USAIRWAYS, we did not create this, AA did. USAIRWAYS never had the problems we have today
Yes, Margaret, the world was very different before everything changed…
So, they’re saying: they want to be the airline for people who refuse to wear masks, who resist social distancing, who believe the pandemic is a hoax, and who are flying to Mexico and Florida because they can, to hell with the consequences! In other words: Trump Airlines.
OK, got it. Make AAmerican Great Again. No masks required, orange hats encouraged.
Doug Parker only knows how to run a low cost carrier, that is all he has done (America West, USAir). Let’s lose the business traveler and fill every seat with $19 fares.
The only way to try to make the employees friendlier is to intimidate them, 1 bad letter and 1 step closer to being fired. How can you be friendly when your on pins and needles everyday in fear of losing your job.
AA has taken the decision and authorizing out of the scheme, and left it to people who are trying to manage in another city. no one is willing to make a decision as it will come back to haunt thrm
non business flyers have been raked over the coals year after year. Charges for everything to squeeze the last penny out of the common folks. Add more seats, make the seats smaller, take away a decent snack but give us pretzels, etc etc has just added to their greed. It is a bit difficult to feel sorry for AA and other airlines when you stop to consider—-“2019 total revenue to a record $11.3 billion.” Maybe they need to rethink the things they have taken away from the consumer. The drastic drop in business travel will not get better—big corporations are realizing they are still earning profits without flying their employees all over the world.
the passenger has HAND now! take advantage of this!